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SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPT. 28, 2002, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO
____________
Commission File Number 0-19791
USFREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter
Delaware 36-3790696
(State of Incorporation) (IRS Employer Identification No.)
8550 W. Bryn Mawr Ave.,Suite 700 60631
Chicago, Illinois
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
including area code: (773) 824-1000
Not applicable
(Former name or former address, if changed since the last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 1,2002 26,941,758 shares of common stock were outstanding.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
USFreightways Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in Thousands)
September 28, December 31,
2002 2001
- -----------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 74,676 $ 79,534
Accounts receivable, net 328,492 295,876
Other 74,030 70,840
----------------- -------------------
Total current assets 477,198 446,250
----------------- -------------------
Property and equipment, net 738,155 732,520
Goodwill 100,504 171,708
Other intangible assets, net 1,474 3,016
Notes receivable 9,236 5,036
Other assets 20,491 20,134
----------------- -------------------
Total assets $ 1,347,058 $ 1,378,664
----------------- -------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current bank debt $ 416 $ 1,037
Accounts payable 98,377 89,979
Accrued salaries, wages and benefits 107,426 90,497
Accrued claims and other 94,514 84,198
----------------- ------------------
Total current liabilities 300,733 265,711
----------------- ------------------
Long-term liabilities:
Long-term bank debt 2,225 2,774
Notes payable 250,000 250,000
Accrued claims and other 81,085 77,055
Deferred income taxes 92,243 93,617
----------------- ------------------
Total long-term liabilities 425,553 423,446
----------------- ------------------
Minority interest - 1,855
Stockholders' equity 620,772 687,652
----------------- ------------------
Total liabilities and stockholders' equity $ 1,347,058 $ 1,378,664
----------------- ------------------
See accompanying Notes to Condensed Consolidated Financial Statements.
USFreightways Corporation
Condensed Consolidated Statements of Operations
Unaudited (Dollars in Thousands, Except Per-Share Amounts)
Three Months Ended Nine Months Ended
------------------------------------- ------------------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
- ----------------------------------------------------------------------------- -----------------------------
Operating revenue:
LTL Trucking $ 483,318 $ 461,391 $ 1,388,709 $ 1,385,719
TL Trucking 29,649 24,534 83,484 74,794
Logistics 67,707 67,663 203,852 205,737
Freight Forwarding 56,048 64,992 167,193 197,595
Intercompany eliminations (2,189) - (6,208) -
_______ _______ _________ __________
Total operating revenue 634,533 618,580 1,837,030 1,863,845
Operating expenses:
LTL Trucking 452,729 430,692 1,312,742 1,302,178
TL Trucking 28,075 24,169 79,492 72,709
Logistics 64,823 63,223 196,602 196,282
Freight Forwarding 66,017 73,840 187,444 212,629
Freight Forwarding-
Asia exit costs - - 12,760 -
Corporate and other 7,275 4,728 22,283 14,024
Intercompany eliminations (2,189) - (6,208) -
________ _________ ________ _________
Total operating expenses 616,730 596,652 1,805,115 1,797,822
Income from operations 17,803 21,928 31,915 66,023
________ _________ _________ ________
Non-operating income (expense):
Interest expense (5,185) (5,236) (15,640) (16,218)
Interest income 384 322 1,795 710
Other, net (428) (199) (788) 18
________ ________ _________ _________
Total non-operating expense (5,229) (5,113) (14,633) (15,490)
________ ________ _________ ________
Income before income 12,574 16,815 17,282 50,533
taxes, minority interest, and
cumulative effect of
accounting change
Income tax expense (7,255) (6,763) (13,686) (20,090)
Minority interest - (321) - (838)
_______ _____ ______ _______
Income before cumulative 5,319 9,731 3,596 29,605
effect of accounting change
Cumulative effect of change in
accounting for goodwill - - (70,022) -
______ _____ _______ ______
Net income/(loss) $ 5,319 $ 9,731 $ (66,426) $ 29,605
====== ===== ======= ======
Income per share before
Cumulative effect : Basic $ 0.20 $ 0.37 $ 0.13 $ 1.13
Diluted $ 0.19 $ 0.36 $ 0.13 $ 1.11
(Loss) per share - cumulative
effect: Basic $ - $ - $ (2.60) $ -
Diluted $ - $ - $ (2.56) $ -
Net income/(loss)per share: Basic $ 0.20 $ 0.37 $ (2.47) $ 1.13
Diluted $ 0.19 $ 0.36 $ (2.43) $ 1.11
Average shares outstanding: Basic 26,924,123 26,335,517 26,872,059 26,267,763
Diluted 27,338,300 26,912,541 27,344,357 26,765,551
See accompanying Notes to Condensed Consolidated Financial Statements.
USFreightways Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in Thousands)
Nine Months Ended
----------------------------
September 28, September 29,
2002 2001
- --------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income/(loss) $ (66,426) $ 29,605
Adjustments to net income/ (loss):
Depreciation and amortization 76,442 83,552
Cumulative effect of change in accounting 70,022 -
for goodwill
Impairment of long-lived assets 7,804 -
Other items affecting cash (258) 33,292
from operating activities
-------------- -------------
Net cash provided by operating activities 87,584 146,449
-------------- -------------
Cash flows from investing activities:
Capital expenditures (90,486) (58,802)
Proceeds on sales on property and equipment 5,700 7,677
Disposition of USF Asia (6,000) -
-------------- -------------
Net cash used in investing activities (90,786) (51,125)
-------------- -------------
Cash flows from financing activities:
Dividends paid (7,497) (7,318)
Proceeds from sale of stock 7,011 12,612
Proceeds from long-term debt - 10,000
Payments on long-term debt (549) (17,403)
Net change in short-term debt (621) (27,869)
-------------- -------------
Net cash used in financing activities (1,656) (29,978)
-------------- -------------
Net increase/(decrease) in cash (4,858) 65,346
-------------- -------------
Cash at beginning of period 79,534 5,248
-------------- -------------
Cash at end of period $ 74,676 $ 70,594
-------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 9,890 $ 10,928
Income taxes 10,793 12,965
See accompanying Notes to Condensed Consolidated Financial Statements.
USFreightways Corporation
Condensed Consolidated Statements of Changes in Stockholders' Equity
Unaudited (Dollars in Thousands)
Nine Months Ended
-----------------
September 28, September 29,
2002 2001
Balance as of December 31, 2001, and 2000, $ 687,652 $ 635,176
respectively
Net income/(loss) (66,426) 29,605
Foreign currency translation adjustments 67 (57)
-------- -------
Comprehensive income/(loss) $ (66,359) $ 29,548
Proceeds from sale of stock 7,011 12,612
Dividends declared (7,532) (7,366)
---------- ----------
Balance as of September 28, 2002 and
September 29, 2001,respectively $ 620,772 $ 669,970
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
1. Summary of significant accounting policies
General -
The consolidated financial statements include the accounts of USFreightways
and our wholly-owned subsidiaries. The financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The statements
are unaudited but, in the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Intercompany balances and transactions have been eliminated. Our
consolidated financial statements for prior periods have been reclassified to
conform with the current presentation. Our results of operations are affected by
the seasonal aspects of the trucking and air freight industries. Therefore,
operating results for the three and nine months ended Sept. 28, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. We report on a calendar year basis. Our quarters consist of
thirteen weeks that end on the Saturday nearest the end of March, June and
September. For further information, refer to consolidated financial statements
and footnotes thereto included in our annual report on Form 10-K for the year
ended December 31, 2001.
2. Earnings per share
Basic earnings/ (loss) per share are calculated on net income/ (loss)
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share are calculated by dividing net income by the
weighted-average number of common shares outstanding plus the shares that would
have been outstanding assuming the issuance of common shares for all dilutive
potential common shares. Unexercised stock options, calculated under the
treasury stock method, are the only reconciling items between our basic and
diluted earnings per share. The number of options included in the denominator,
used to calculate diluted earnings per share are reported in the table below:
Three months ended Nine months ended
September 28, 2002 September29, 2001 September 28, 2002 September 29, 2001
__________________ _________________ __________________ _________________
414,177 577,024 472,298 497,788
3. Debt
Our debt includes $100 million of unsecured guaranteed notes due May 1,
2009 and $150 million of unsecured guaranteed notes due April 15, 2010.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all our direct and indirect
domestic subsidiaries (the "Subsidiary Guarantors"). We are a holding company
and during the period presented substantially all of the assets were the stock
of the Subsidiary Guarantors, and substantially all of the operations were
conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors were substantially
equivalent to the assets, liabilities, earnings and equity shown in our
consolidated statements. Our management believes that separate financial
statements of, and other disclosures with respect to, the Subsidiary Guarantors
are not meaningful or material to investors.
As of September 28, 2002, we had a $200 million credit facility with a
group of banks that was set to expire in November 2002. This facility was for
working capital, general corporate funding needs, and up to $100 million for
letters of credit we issue under our self-insurance program. As of September 28,
2002 we had no borrowings drawn under the facility, but we had approximately $67
million in issued letters of credit.
On October 24, 2002 we entered into a new three year $200 million credit
facility with a group of banks to replace our existing facility that was
scheduled to expire on November 24, 2002. (See Footnote 10 - Subsequent Events)
4. Stock repurchases
On July 24, 2000, we announced the authorized buyback of up to 1 million
additional shares of our common stock in either public market or private
transactions. This repurchase program is not yet completed. There were no shares
repurchased in the first, second or third quarters of 2002 or the first, second
or third quarters of 2001. From July 24, 2000 through September 28, 2002, we
have repurchased 454,200 shares; the last share repurchase occurred in the 2000
fourth quarter.
5. Notes receivable
USF Asia Group, Ltd.
On January 18, 2002 USF Worldwide relinquished its interest in USF Asia
Group, Ltd., its freight forwarding joint venture in Asia. A one-time payment of
$10 million was made to Asia Challenge, Ltd., a Hong Kong based logistics
company and USF Worldwide's former joint venture partner. We also provided $6
million in loans to Asia. The loans included a $3.0 million secured loan and a
$3.0 million unsecured loan. Both loans were due on June 30, 2005 and each bore
interest at the six-month LIBOR plus 1%. Interest was payable quarterly. Income
from operations and income before income taxes, minority interest , and
cumulative effect of accounting change were reduced by approximately $12.8
million in the first quarter as a result of this transaction. No net tax
benefits were recorded with the transaction. (See Footnote 10- Subsequent
Events)
Auto Warehousing Company ("AWC")
We have notes receivable from AWC, a company that we owned until 1993,
totaling $5.2 million ($2.0 million in accounts receivable) as of Sept. 28, 2002
and $5.7 million as of December 31, 2001. Amendments to the original notes were
executed in August 2002. In accordance with the amendments, the notes now bear
interest at the Prime rate plus 1.0%. Additionally, beginning in September 2003,
the notes will bear interest at the Prime rate plus 5.0%. Interest is payable
quarterly and is current. Principal payments of $0.5 million are due quarterly
beginning in September 2002 with a final installment due March 31, 2005. The
notes are secured by a lien on all assets of AWC and a personal guarantee by
AWC's owner including a pledge by the owner of 100% of his stock in AWC.
Our notes receivable are secondary to loans due from AWC to banks. AWC made
its required principal payment to us in September 2002. We have evaluated the
carrying value of these notes receivable, and based on AWC's ongoing operating
results, we believe the notes receivable from AWC will be collected in full.
6. Goodwill and other intangible assets
Under Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill
and Other Intangible Assets", previously recorded goodwill and other intangible
assets with indefinite lives are no longer amortized but are subject to
impairment tests annually. Effective January 1, 2002 amortization of goodwill
ceased under the standard. In the third quarter of 2001, we amortized $1.6
million of goodwill. As a result of implementing this new standard on January 1,
2002, we recorded an impairment charge of $70 million at USF Worldwide, our
freight forwarding segment. The charge was shown as a cumulative effect of
change in accounting for goodwill in the first quarter. In the third quarter of
2002, we made a contractual payment to the former owners of USF Worldwide
Logistics Ltd. ("USF UK") of $4.7 million. The amount was recorded as goodwill,
and then we recorded an impairment charge for the entire $4.7 million. The
charge was included in Operating expenses. Intangibles consist of the following
September 28, 2002 September 29, 2001
__________________ _________________
Gross Gross
Average Carrying Accumulated Carrying Accumulated
Life (Yrs) Amount Amortization Amount Amortization
__________ ________ ____________ _________ ____________
Amortized intangible assets:
Customer lists 5 $ 6,073 $ (4,748) $ 6,073 $ (3,541)
Non-competes 5 5,404 (5,255) 8,198 (7,311)
________ _________ _______ __________
Total $ 11,477 $(10,003) $ 14,271 $ (10,852)
====== ======= ====== ========
Intangible assets not subject to amortization:
Goodwill $100,504 $ - $ 213,429 $ (40,039)
======= ======== ======= ========
Aggregate amortization expense
For the nine months ended September 28, 2002 $ 1,103
Estimated amortization expense for each of the years ended December 31
is as follows:
2002 $ 1,408
2003 866
2004 265
2005 38
_______
Total 2,577
=======
The changes in carrying amount of goodwill for the nine month period ended
September 28 2002 is as follows:
Freight Corporate
LTL TL Logistics Forwarding and other
segment segment segment segment segment Total
_______ _______ _________ _________________ _____ ______
Balance as of January 1, 2002 $57,273 $10,574 $32,657 $71,204 $ - $171,708
Impairment losses - - - (71,204) - (71,204)
Additions - UK 4,699 - 4,699
Impairment losses - UK (4,699) - (4,699)
_______ _______ _______ _______ _______ _________
Balance as of September 28, 2002 $57,273 $10,574 $32,657 $ - - $ 100,504
======= ====== ====== ======= ====== =======
The following table adjusts earnings and earnings per share for the adoption of
SFAS No. 142.
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
____________ _____________ ____________ ____________
Reported net income/ (loss) $ 5,319 $ 9,731 $ (66,426) $ 29,605
Add back: goodwill amortization, - 1,623 - 4,581
net of tax _________ ________ __________ _________
Adjusted net income/(loss) $ 5,319 $ 11,354 $ (66,426) $ 34,186
Add back cumulative effect
of accounting change - - 70,022 -
________ __________ _________ ________
Adjusted net income before
cumulative effect of accounting
change $ 5,319 $ 11,354 $ 3,596 $ 34,186
======= ====== ======= ======
Basic earnings/ (loss) per share:
Reported basic EPS $ 0.20 $ 0.37 $ (2.47) $ 1.13
Add back goodwill amortization - 0.06 - 0.17
net of tax ________ ________ _______ _________
Adjusted basic EPS $ 0.20 $ 0.43 $ (2.47) $ 1.30
Add back cumulative effect of
accounting change - - 2.60 -
_______ _______ ________ _______
Adjusted basic EPS before cumulative
effect of accounting change $ 0.20 $ 0.43 $ 0.13 $ 1.30
======= ======= ======= =======
Diluted earnings/ (loss) per share:
Reported diluted EPS $ 0.19 $ 0.36 $ (2.43) $ 1.11
Add back goodwill amortization - 0.06 - 0.17
net of tax ________ _________ _______ __________
Adjusted diluted EPS $ 0.19 $ 0.42 $ (2.43) $ 1.28
Add back cumulative effect of
accounting change - - 2.56 -
________ _______ ________ ________
Adjusted diluted EPS before
Cumulative effect of accounting
change $ 0.19 $ 0.42 $ 0.13 $ 1.28
======== ======== ======= =======
Weighted average shares:
Basic 26,924 26,335 26,872 26,268
Diluted 27,338 26,912 27,344 26,766
7. Long Lived Assets
During the second quarter the extent of operating losses of USF Worldwide
caused a review of the recoverability of it's long-lived assets under SFAS No.
144. These assets included primarily property and equipment and intangible
assets. We determined that the long-lived assets were impaired based upon
estimates of future cash flows and discounted prices for similar assets and
recorded a charge in the second quarter of 2002 amounting to $7.8 million ($6.1
million of the charge was recorded in the Freight forwarding segment while the
remaining $1.7 million of the charge was recorded in Corporate and Other) to
write down the assets to their fair value.
8. Recent Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The pronouncement rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishments of Debt", and an amendment of that Statement,
FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." The pronouncement also rescinds FASB Statement No. 44,
"Accounting for Intangible Assets of Motor Carriers" and amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 will be effective for us on January 1,
2003. We have evaluated this statement and determined that there will be no
impact on our consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to
recognize the costs associated with exit or disposal activities when they are
incurred. Currently these types of costs are recognized at the time management
commits the company to the exit / disposal plan in accordance with EITF Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This statement is effective for exit or disposal activities that
are initiated subsequent to December 31, 2002. Accordingly, we will apply the
provisions of SFAS No. 146 prospectively to exit or disposal activities
initiated subsequent to December 31, 2002.
9. Segment Reporting Three Months Ended Nine Months Ended
(Dollars in Thousands) September 28, September 29, September 28, September 29,
2002 2001 2002 2001
- ------------------------------------------------------------------------------- ---------------------
Revenue
LTL Group:
USF Holland $ 245,765 $ 237,030 $ 715,165 $ 717,410
USF Reddaway 72,065 68,872 202,648 201,832
USF Red Star 68,877 64,488 198,608 194,409
USF Dugan 57,011 53,384 160,606 156,491
USF Bestway 39,600 37,617 111,682 115,577
- ------------------------------------------------------------------------------- ----------------------
Sub total LTL Group 483,318 461,391 1,388,709 1,385,719
Truckload - USF Glen Moore 29,649 24,534 83,484 74,794
Logistics subsidiaries 67,707 67,663 203,852 205,737
Freight forwarding 56,048 64,992 167,193 197,595
Corporate and other - - - -
Intercompany eliminations (2,189) - (6,208) -
- ------------------------------------------------------------------------------- ----------------------
Total Revenue $ 634,533 $ 618,580 $ 1,837,030 $ 1,863,845
Income/(loss) from Operations
LTL Group:
USF Holland $ 18,820 $ 20,064 $ 51,664 $ 56,826
USF Reddaway 9,537 7,768 20,513 18,476
USF Red Star (1,017) (599) (4,680) (2,389)
USF Dugan 451 1,219 1,923 4,602
USF Bestway 2,798 2,247 6,547 6,026
- ------------------------------------------------------------------------------- ---------------------
Sub total LTL Group 30,589 30,699 75,967 83,541
Truckload - USF Glen Moore 1,574 365 3,992 2,085
Logistics subsidiaries 2,884 4,440 7,250 9,455
Freight forwarding ( 9,969) (1) (8,848) (20,251)(1,2)(15,034)
Freight forwarding -
Asia exit costs - - (12,760) -
Corporate and other (7,275) (4,728) (22,283) (2)(14,024)
- ------------------------------------------------------------------------------- ------------------------------------------
Total Income from Operations $ 17,803 $ 21,928 $ 31,915 $ 66,023
- ------------------------------------------------------------------------------ ------------------------------------------
(1) Includes impairment charges totaling $4,699.
(2) Includes impairment charges totaling $7,804, of which $6,089 is in Freight
forwarding and $1,715 is included in Corporate and other.
Footnote 10. Subsequent Events
Freight Forwarding Segment
Following extended losses in the freight forwarding business and review of
our overall strategy, we concluded that the freight forwarding business ("the
USF Worldwide Group") did not fit as one of our core businesses. As a result, on
October 18, 2002, we announced the execution of an agreement with GPS Logistics,
Inc. and Seko Worldwide Acquisitions LLC (collectively "the Transferees") to
transfer our interest in the USF Worldwide Group. As a condition to the transfer
and in consideration to Transferees' obligation to assume ownership of the stock
of the USF Worldwide Group, we agreed to contribute $17 million in cash to USF
Worldwide Inc. As part of the agreement, the Transferees have the option for a
period of up to six months from closing to return their interest in certain
assets to us for $3 million in cash. In the fourth quarter we will record an
after tax loss of approximately $10 - 13 million on this transaction. The
transaction closed on October 30, 2002.
As part of our divestiture of the USF Worldwide Group, our non-core freight
forwarding business, $6.0 million in loans made to Asia in January 2002 were
forgiven (See Footnote 5 - Notes Receivable USF Asia Group, Ltd.).
The following pro forma financial statements for the third quarter and
year-to-date illustrate the effect of the Freight Forwarding operations as if
the results had been reported as discontinued operations:
USFreightways Corporation
Pro Forma Condensed Consolidated Statements of Operations
Unaudited (Dollars in Thousands, Except Per-Share Amounts)
Three Months Ended Nine Months Ended
------------------------------------- ------------------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------
Operating revenue:
LTL Trucking $ 483,318 $ 461,391 $ 1,388,709 $ 1,385,719
TL Trucking 29,649 24,534 83,484 74,794
Logistics 67,707 67,663 203,852 205,737
Asia operations - 7,252 - 17,450
Intercompany eliminations (2,189) - (6,208) -
------------- ------------ ---------- ----------
Total operating revenue 578,485 560,840 1,669,837 1,683,700
Operating expenses:
LTL Trucking 452,729 430,692 1,312,742 1,302,178
TL Trucking 28, 075 24,169 79,492 72,709
Logistics 64,823 63,223 196,602 196,282
Freight Forwarding-
Asia exit costs - - 12,760 -
Asia operations - 7,825 - 19,232
Corporate and other 7,262 4,180 20,395 12,326
Intercompany eliminations (2,189) - (6,208) -
-------------- ------------- ---------- ----------
Total operating expenses 550,700 530,089 1,615,783 1,602,727
------------- ------------- ---------- ----------
Income from operations 27,785 30,751 54,054 80,973
-------------- ------------ ---------- ----------
Non-operating income (expense):
Interest expense (5,110) (5,127) (15,340) (15,830)
Interest income 373 433 1,771 704
Other, net (419) (178) (800) (278)
------------ ------------ ---------- ----------
Total non-operating expense (5,156) (4,872) (14,369) (15,404)
-------------- ------------ ---------- ----------
Income from continuing 22,629 25,879 39,685 65,569
operations before income
taxes, minority interest, and
cumulative effect of
accounting change
Income tax expense (9,183) (10,026) (20,059) (25,503)
Minority interest - (321) - (838)
Income from continuing
operations 13,446 15,532 19,626 39,228
Discontinued operations
Loss from operations of
Freight Forwarding segment (10,055) (9,064) (22,403) (15,036)
Income tax benefit 1,928 3,263 6,373 5,413
------- ------- -------- ---------
Loss on discontinued operations (8,127) (5,801) (16,030) (9,623)
--------- --------- ----------- ----------
Income before cumulative 5,319 9,731 3,596 29,605
effect of accounting change
Cumulative effect of change in
accounting for goodwill - - (70,022) -
------------- ------------ ---------- ----------
Net income/(loss) $ 5,319 $ 9,731 $ (66,426) $ 29,605
------------ ------------ ---------- ----------
Income per share from
continuing operations:Basic $ 0.50 $ 0.59 $ 0.73 $ 1.49
Diluted $ 0.49 $ 0.58 $ 0.72 $ 1.47
Loss per share from
discontinued operations:Basic $ (0.30) $ (0.22) $ (0.60) $ (0.36)
Diluted $ (0.30) $ (0.22) $ (0.59) $ (0.36)
Loss per share - cumulative
effect: Basic $ - $ - $ (2.60) $ -
Diluted $ - $ - $ (2.56) $ -
Netincome/(loss)per share:Basic$ 0.20 $ 0.37 $ (2.47) $ 1.13
Diluted$ 0.19 $ 0.36 $ (2.43) $ 1.11
Average shares outstanding:
Basic 26,924,123 26,335,517 26,872,059 26,267,763
Diluted 27,338,300 26,912,541 27,344,357 26,765,551
--------------- --------------- ----------- ----------
Replacement Credit Facility
On October 24, 2002 we entered into a new three year $200 million credit
facility with a group of banks to replace our existing facility that was
scheduled to expire on November 24, 2002. Like our prior credit facility, this
new facility is for working capital, general corporate funding needs, and up to
$125 million for letters of credit we issue under our self-insurance program. As
of November 1, 2002 we had no borrowings drawn under the facility, but we had
approximately $67 million in issued letters of credit.
The facility bears interest at LIBOR plus a margin depending on our debt
rating. In addition, there are other fees associated with the facility and
certain financial covenants including minimum net worth and maximum funded debt
to adjusted cash flow.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Results of Operations
We ("USFreightways Corporation") reported net income for the quarter ended
September 28, 2002 of $5.3 million, compared to net income of $9.7 million that
was reported for the quarter ended September 29, 2001. For year-to-date through
September 28 and September 29, of 2002 and 2001, we reported a net loss of $66.4
million and net income of $29.6 million, respectively.
The net income per share for the current year's quarter was equivalent to
$0.19 diluted earnings per share. Net income per share for the 2001 quarter
amounted to $0.36 diluted earnings per share. Net income for the current year's
quarter included a pre-tax charge of $4.7 million relating to contractual
payments to former owners of USF Worldwide Logistics Ltd. ("USF UK") one of the
operating units within our freight forwarding segment. This payment was recorded
as goodwill and we subsequently recorded an impairment charge in accordance with
Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other
Intangible Assets". Earnings in the current quarter from our core operations
which includes Less-than-truckload ("LTL") regional trucking companies,
Truckload ("TL"), Logistics and Corporate and Other segments amounted to $0.49
diluted earnings per share compared to $0.60 diluted earnings per share in the
2001 third quarter. Losses in our non-core operations in the freight forwarding
segment (including USF Worldwide, Inc., USF UK, and USF Asia) amounted to $0.30
diluted loss per share in the current quarter compared to $0.24 diluted loss per
share in the 2001 third quarter.We reported a third quarter 2001 loss per share
from discontinued operations, in Footnote 10 - Subsequent Events, amounting to
$0.22. The difference amounts to a $0.02 loss per share from USF Asia that is
considered non-core operations in this paragraph, but for GAAP accounting is
considered part of continuing operations.
We announced on October 18, 2002 that we have an agreement to sell our
non-core freight forwarding business (USF Worldwide Inc. and USF Worldwide
Logistics Ltd.). The transaction closed on October 30, 2002 (See Footnote 10).
The net loss for year to date 2002 amounted to $66.4 million equivalent to
($2.43) diluted loss per share compared to net income of $29.6 million ($34.2
million before amortization of goodwill - see Footnote 6) equivalent to $1.11
diluted earnings per share ($1.28 diluted earnings per share before amortization
of goodwill - see footnote 6) in the first nine months of 2001. The net loss for
the first nine months of 2002 included pre-tax charges of $12.8 million for
relinquishing USF Worldwide's interest in USF Asia in early January, $70.0
million related to goodwill impairment at USF Worldwide upon implementation of
SFAS No. 142, $4.7 million related to goodwill impairment at USF UK recorded in
accordance with SFAS No. 142 and $7.8 million relating to long-lived asset
impairment under SFAS No. 144 (also at USF Worldwide). Year to date earnings
before these charges amounted to approximately $0.94 diluted earnings per share.
Of the $95.3 million total pre-tax charges taken, $80.6 million were non-cash.
We reported revenue for the third quarter ended September 28, 2002 of
$634.5 million compared to $618.6 million reported for the third quarter which
ended September 29, 2001. Revenue for the first nine months of 2002 amounted to
$1.84 billion a 1.4% decline from the $ 1.86 billion in revenue reported for the
first nine months of 2001.
Total revenue for the current quarter at the regional trucking subsidiaries
increased 4.7% to $483.3 million compared to $461.4 million in the 2001 third
quarter. On September 2, 2002, Consolidated Freightways Corporation of Delaware
Inc. ("CF") filed for bankruptcy and ceased operations. After CF's closure, our
regional trucking subsidiaries picked up a portion of CF's business and related
revenue. Revenue from our new PremierPlus product (revenue from shipments moving
between our regional trucking subsidiaries) which had previously accounted for
approximately 11% of total revenue in the regional trucking subsidiaries grew to
14% of total revenue in the month of September due in part to revenue picked up
after CF's closure. LTL shipments and tonnage in July and August 2002 increased
by approximately 4.0% over the same periods in 2001. LTL shipments and tonnage
in September 2002 increased by 8.6% and 7.5%, respectively, compared to
September 2001- largely due to CF's closure. Total revenue at the regional
trucking subsidiaries increased by approximately 8.0% in September 2002 compared
to September 2001.
There were 63 working days in the current year's and last year's quarter.
On a comparable working day basis, total revenue in the 2002 third quarter
increased by 3.3% over the second quarter of 2002 (included 64 working days).
Fuel surcharges, which are included in the reported revenue, declined by
approximately 0.6% as a percent of revenue compared to last year's third quarter
as fuel prices declined. LTL revenue before fuel surcharges increased by
approximately 5.2% in the 2002 quarter compared to the 2001 third quarter. LTL
shipments increased 5.9% and LTL tonnage increased 5.4%. LTL revenue per
shipment decreased 1.2% from $115.93 to $114.58 as the average weight per
shipment decreased 0.5% from 1,112.6 pounds to 1,106.9 pounds. On a comparable
working day basis, LTL shipments and LTL tonnage were basically flat when
compared to the 2002 second quarter.
Total revenue for the first nine months of 2002 at the regional trucking
subsidiaries, reversing earlier trends, increased slightly to $1,388.7 million
compared to $1,385.7 million in the first nine months of 2001. Year to date LTL
shipments increased by 2.3%, LTL tonnage increased by 1.5%, LTL revenue per
shipment declined by 1.8% to $112.57 and the weight per shipment declined by
0.8% to 1,108.0 pounds from 1,116.8 pounds in the first nine months of 2001.
Fuel surcharges, included in the reported revenue, declined by approximately
1.2% as a percent of revenue compared to last year's first nine months as fuel
prices declined.
Operating earnings for the regional trucking subsidiaries, in the current
year's quarter, were $30.6 million compared to $30.7 million for the same period
of 2001. The consolidated operating ratio for the LTL group increased to 93.7
from 93.3 in the third quarter of 2001. Despite a still underlying sluggish
economy but augmented by CF's closure in early September, USF Reddaway reported
an improvement in its operating ratio by 1.9 operating points, on a 4.6%
increase in revenue, in the current quarter to 86.8 compared to last year's
third quarter operating ratio of 88.7 (mainly from improvements in fuel,
labor,operating taxes and depreciation expenses that were somewhat offset by
increases in operating and purchased transportation expenses). USF Holland,
operating in the central states where the economy is heavily influenced by
manufacturing, particularly in the automotive area, increased revenue by 3.7%
compared to last year's third quarter and reported an operating ratio of
92.3compared to 91.5 in the 2001 third quarter (increases in labor and claims
expenses were somewhat offset by decreases in fuel expenses). USF Bestway,
reversing earlier growth declines, reported an increase in revenue of 5.3%
compared to last year's third quarter and improved its operating ratio to 92.9
compared to 94.0 in the 2001 third quarter due to lower claims and other
operating expenses offset slightly by an increase in purchased transportation
expenses in the 2002 quarter. USF Dugan recorded a revenue increase of 6.8% in
the current quarter compared to the 2001 third quarter. USF Dugan operated at
99.2 in the 2002 third quarter compared to 97.7 in last year's third quarter.
USF Dugan incurred $0.6 million in costs in the current quarter related to an
environmental matter. Without these environmental costs, USF Dugan would have
reported an operating ratio of 98.1. USF Red Star recorded a 101.5 operating
ratio in the 2002 third quarter compared to 100.9 in last year's third quarter.
The closure of CF, in September, and APA earlier in the year allowed USF Red
Star to increase revenue by 6.8% in the current quarter compared to last year's
third quarter. USF Red Star improved its current quarter operating ratio
compared to the 2002 second quarter operating ratio of 101.8. Improvements in
fuel, workers' compensation and depreciation expenses were offset by increases
in labor and purchased transportation expenses.
Operating earnings for the regional trucking companies in the first nine
months of 2002 amounted to $76.0 million, a decrease of 9.1% compared to
operating earnings of $83.5 million in the first nine months of 2001 due mainly
to the sluggish economy. The consolidated operating ratio for the regional
trucking companies for the first nine months of 2002 was 94.5 compared to 94.0
for the first nine months of 2001. Year over year operating ratio improvements
occurred at USF Bestway (due mainly to reduced claims expenses in the 2002 first
nine months) and USF Reddaway (due mainly to lower fuel expenses in the 2002
first nine months). USF Red Star's operating ratio increased in the first nine
months of 2002 compared to the first nine months of 2001. Despite additional
business gained from the closures of APA and CF, USF Red Star incurred
additional labor and purchased transportation expenses in order to service the
higher business volumes. USF Holland reported an increase in its year to date
operating ratio to 92.8 in the first nine months of 2002 compared to a 92.1 in
the first nine months of 2001 as the economy in the central states (which is
heavily automotive related) has been the most adversely impacted. USF Dugan
reported an increase in operating ratio in the first nine months of 2002 to 98.8
from 97.1 in the first nine months of 2001 as it incurred additional labor and
purchased transportation costs in order to improve service products. Additional
environmental costs were incurred as mentioned above.
As truckload revenue per total mile increased in the current quarter
compared to the 2001 third quarter and its customer base increased, USF Glen
Moore, our TL carrier recorded a 20.8% revenue increase to $29.6 million in the
2002 third quarter. USF Glen Moore had operating earnings of $1.6 million and an
operating ratio of 94.7 compared to $0.4 million profit and an operating ratio
of 98.5 in the 2001 third quarter as improvements in labor, purchased
transportation and claims expenses were partially offset by increases in fuel
expenses.
USF Glen Moore reported revenue in the first nine of 2002 of $83.5 million,
an increase of 11.6% compared to $74.8 million in the first nine months of 2001.
Operating earnings for the first nine months of 2002 improved by 91.5% to $4.0
million from $2.1 million in the first nine months of 2001 and its operating
ratio improved to 95.2 in 2002 from 97.2 in 2001 due mainly to improvement in
truckload revenue per mile and reductions in fuel, labor and claims costs.
As part of USF Glen Moore's service offerings, it hauls freight for our LTL
regional trucking companies. Therefore, the intercompany revenue that is
eliminated on our Consolidated Statements of Operations and Footnote No. 8
Segment Reporting is that revenue generated and recorded by USF Glen Moore for
the services it provides to our LTL regional trucking companies who in turn
record an expense for transportation services in their results.
Revenue in the Logistics group amounted to $67.7 million in the current
quarter (virtually the same as recorded in the prior year). Revenue at USF
Logistics increased by 6.0%. Earnings in the Logistics group decreased by 35.0%
from $4.4 million in the 2001 third quarter to $2.9 million in the 2002 third
quarter as a softness in the retail industry and early losses incurred for new
warehouse operations adversely impacted their results. USF Processors
contributed lower revenue in the 2002 quarter amounting to approximately $10.2
million compared to approximately $13.4 million in last year's quarter as
volumes from a major customer were significantly reduced. As Processors
exercised cost controls on lower revenue volumes, it reported an operating
profit of $ 0.3 million for the current quarter compared to $ 0.8 million in the
2001 third quarter, and significantly improved its profits from a 2002 second
quarter small operating loss.
Revenue in the Logistics group for the first nine months of 2002 declined
by 0.9% to $203.9 million compared to $205.7 million in the first nine months of
2001. USF Logistics increased revenue as new distribution centers and new
contracts started up while USF Processors reported lower revenue as volumes from
a major customer were significantly reduced in the first nine months of 2002
compared to the first nine months of 2001. Operating earnings decreased by 23.3%
to $7.2 million in the first nine months of 2002 as USF Logistics reported
increased profits from recently opened distribution centers, but USF Processors
reported a loss of $1.3 million in the current year compared to a profit of $1.3
million in the first nine months of 2001.
Revenue in the non-core Freight Forwarding segment decreased 13.8% to $56.0
million from $65.0 million in the 2001 third quarter. $7.3 million of revenue
was reported in USF Asia in the 2001 third quarter, whereas there was no revenue
reported in the 2002 third quarter because we relinquished our interest in USF
Asia in the first week of 2002. Despite the significant efforts of the segment's
management team at controlling fixed and variable costs, continued lower
business levels and revenue from operations have led to continued significant
losses. The segment reported an operating loss of $10.0 million (including a
goodwill impairment charge recorded in accordance with SFAS No. 142 in USF UK as
a result of a $4.7 million contractual payment made to the former owners). Lower
profits resulted primarily from lower gross margins due to reduced volumes
compared to last year. An additional charge of $2.0 million was incurred in USF
Worldwide in recognition of certain doubtful accounts. The segment recorded an
operating loss of $8.8 million in the 2001 third quarter including charges of
$5.9 million relating to severance, downsizing and other costs relating to
preparations for the implementation of a new freight management system.
Revenue in the non-core Freight Forwarding segment in the first nine months
of 2002 declined by 15.4% to $167.2 million from $197.6 million in the first
nine months of 2001. USF Asia reported revenue of $17.5 million in the 2001
first nine months while there was no revenue reported in the 2002 first nine
months as we relinquished our interest in USF Asia in the first week of 2002.
Freight forwarding domestic revenue at USF Worldwide declined by 8.7% to $141.9
million. The segment reported a 2002 first nine months operating loss of $20.3
million (excluding Asia exit costs of $12.8 million) including a $6.1 million
charge under SFAS No. 144 and a $4.7 million charge in accordance with SFAS No.
142. Last year's first nine months operating loss amounted to $15.0 million
(which includes $5.9 million relating to severance and other downsizing costs).
Freight Forwarding - Asia exit costs are the $12.8 million charge taken to
relinquish the interest in USF Asia. Included in the costs is a one-time payment
of $10.0 million to Asia Challenge, Ltd., a Hong Kong based logistics company
and USF Worldwide's former joint venture partner (see also Footnote 5).
Corporate and other expenses increased by $2.5 million in the 2002 third
quarter to $7.3 million compared to $4.7 million in the 2001 third quarter.
Corporate expenses increased by $4.2 million in the 2002 third quarter compared
to the 2001 third quarter as our information technology group (IT) increased
expenses in the current quarter as it continued to upgrade systems and
infrastructure and explore the plausibility of a single freight management
system for the regional trucking companies. Other expenses decreased in the
quarter by approximately $1.7 million. Due to the implementation of SFAS No.
142, amortization of non-goodwill intangible assets in the 2002 third quarter
decreased to $0.3 million compared to $2.0 million amortization on all
intangible assets in the 2001 third quarter.
Corporate and other expenses for the first nine months of 2002 amounted to
$22.3 million compared to $14.0 million in the first nine months of 2001.
Corporate expenses increased by $11.2 million in the first nine months of 2002
compared to the first nine months of 2001 primarily due to our IT group
increasing its expenses as it continues to upgrade systems and infrastructure
across all of the business segments and explore the plausibility of a single
freight management system for the regional trucking companies. Other expenses
included an asset impairment charge of $1.7 million relating to USF Worldwide
(see comments above) which was recorded in the second quarter of 2002 in
accordance with SFAS No. 144. Non-goodwill amortization amounted to $1.1 million
for the first nine months of 2002 compared to $5.7 million for the amortization
on all intangible assets in the first nine months of 2001.
Income tax expense is calculated on income before income taxes, minority
interest and cumulative effect of accounting change and before the $12.8 million
Asia exit costs and the $4.7 million USF UK goodwill charge (there were no net
tax benefits recorded with respect to these costs). Therefore, adding back these
items increases the reported amount of $17.3 million to the taxable income
before taxes amount of $34.1 million.
The following table provides an analysis of the effective tax rates for the
third quarters and years-to-date for 2002 and 2001:
3rd Qtr. 3rd Qtr. YTD YTD
2002 2001 2002 2001
_______ ______ ____ ____
Reported income before income taxes,
minority interest and cumulative effect
of accounting change 12,574 16,815 17,282 50,533
Income tax expense (7,255) (6,763) (13,686) (20,090)
Effective tax rate 57.7% 40.2% 79.2% 39.8%
Add back /(subtract) to/(from) income
before income taxes, minority interest
and cumulative effect of accounting change:
Goodwill impairment- USF UK 4,699 - 4,699 -
Minority interest - (321) - (838)
Asia exit costs - - 12,760 -
Capital gain - - (644) -
______ ______ ______ ______
Adjusted income before income taxes 17,273 16,494 34,097 49,695
Income tax expense (7,255) (6,763) (13,686) (20,090)
Adjusted effective tax rate 42.0% 41.0% 40.1% 40.4%
Other Matters
Contracts with the International Brotherhood of Teamsters ("Teamsters")
expire with our USF Holland and USF Red Star subsidiaries on March 31, 2003.
Negotiations are in process with the Teamsters for a new contract.
Liquidity and Capital Resources
Cash flows from operating activities contributed $87.6 million during the
first nine months of 2002 compared to $146.4 million during the same period last
year. Our net loss of $66.4 million included non-cash charges for write-offs of
goodwill and long-lived assets at USF Worldwide amounting to $70.0 million and
$4.5 million, respectively. Depreciation of property and equipment and
amortization of non-goodwill intangibles of approximately $76.4 million along
with the aforementioned non-cash goodwill write-off of $70 million and the fixed
asset impairment of $7.8 million increased the net cash provided by operating
activities to $87.6 million. (See table below)
Nine months ended Nine months ended
(Dollars in millions) September 28, 2002 September 29, 2001
______________________________
Cash flows from operating activities:
Net Income before unusual charges $ 25.6 $ 29.6
Subtract unusual charges:
Cash payment - USF Asia (10.0) -
Cash payment - UK (4.7) -
Non-cash USF Asia write-off (2.8) -
Non-cash goodwill write-off (70.0) -
Non-cash assets impairment ( 4.5) -
_________ _______
Net income / (loss) $ (66.4) $29.6
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization $ 76.4 83.5
(Increase)/ decrease in accounts
receivable and other (0.2) 33.3
Goodwill write-off 70.0 -
Fixed assets impairment 7.8 -
_________ ________
Net cash provided by operating activities $ 87.6 $ 146.4
======== =======
Other cash flows used in operating activities included a $10.0 million cash
payment to USF Worldwide's former joint venture partner in Asia when we
relinquished our interest in the joint venture and a $4.7 million contractual
payment to the former owners of our UK operation. We also incurred $6.0 million
in investing activities for loans to USF Asia Group, Ltd.
Other items affecting cash from operating activities included in the
increase /(decrease) in accounts receivable and other for the first nine months
of 2002 amounted to ($0.2) million including increases of $32.6 million in
accounts receivable offset by a similar amount from increases in accounts
payable, accrued wages and related benefits and insurance and claims. Last year
amounted to $33.3 million mainly due to increases in labor and related benefits,
insurance and claims accruals and income taxes payable.
Capital expenditures for the first nine months of 2002 amounted to
approximately $90.5 million including additions of $49.3 million for revenue
equipment, $20.4 million for terminal facilities, $6.1 million for information
technology and $14.7 million for other capital items. Last year for the same
period, capital expenditures amounted to approximately $58.8 million, including
additions of $7.8 million for revenue equipment, $24.5 million for terminal
facilities, $17.0 million for IT equipment and $9.5 million for other capital
items.
Total borrowings decreased by $1.2 million during the first nine months of
2002 and we had approximately $66.7 million invested in overnight money market
deposits. Our net debt to capital ratio (decreasing debt by cash) was 22.3% at
Sept. 28, 2002 compared to 20.2% at December 31, 2001.
Our debt includes $150 million of unsecured guaranteed notes that were
floated in late April, 2000 and are due on April 15, 2010 and $100 million of
unsecured guaranteed notes due May 1, 2009.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all our direct and indirect
domestic subsidiaries (the "Subsidiary Guarantors"). We are a holding company
and during the period presented substantially all of the assets were the stock
of the Subsidiary Guarantors, and substantially all of the operations were
conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors were substantially
equivalent to the assets, liabilities, earnings and equity shown in our
consolidated statements. Our management believes that separate financial
statements of, and other disclosures with respect to, the Subsidiary Guarantors
are not meaningful or material to investors.
As of September 28, 2002 we had a $200 million credit facility with a group
of banks that was set to expire in November 2002. This facility was for working
capital, general corporate funding needs, and up to $100 million for letters of
credit we issue under our self-insurance program. At September 28, 2002, we had
no borrowings drawn under the facility, but we had approximately $67 million in
issued letters of credit.
On October 24, 2002 we entered into a new three year $200 million credit
facility with a group of banks to replace our existing facility that was
scheduled to expire on November 24, 2002. Like our prior credit facility, this
new facility is for working capital, general corporate funding needs, and up to
$125 million for letters of credit we issue under our self-insurance program. As
of November 1, 2002 we had no borrowings drawn under the facility, but we had
approximately $67 million in issued letters of credit.
The facility bears interest at LIBOR plus a margin depending on our debt
rating. In addition, there are other fees associated with the facility and
certain financial covenants including minimum net worth and maximum funded debt
to adjusted cash flow.
On July 24, 2000, we announced the authorized buyback of up to 1 million
additional shares of our common stock in either public market or private
transactions. This repurchase program is not yet completed. There were no shares
repurchased in the first, second or third quarters of 2002 or the first, second
or third quarters of 2001. From July 24, 2000 through September 28, 2002, we
have repurchased 454,200 shares; the last share repurchase occurred in the 2000
fourth quarter.
A dividend of 9 1/3 cents per share equivalent to $2.5 million was paid on
October 4, 2002 to shareholders of record on September 20, 2002.
Recent Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The pronouncement rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishments of Debt", and an amendment of that Statement,
FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." The pronouncement also rescinds FASB Statement No. 44,
"Accounting for Intangible Assets of Motor Carriers" and amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 will be effective for us on January 1,
2003. We have evaluated this statement and determined that there will be no
impact on our consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires companies to recognize
the costs associated with exit or disposal activities when they are incurred.
Currently these types of costs are recognized at the time management commits the
company to the exit / disposal plan in accordance with EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring). This
statement is effective for exit or disposal activities that are initiated
subsequent to December 31, 2002. Accordingly, the company will apply the
provisions of SFAS No. 146 prospectively to exit or disposal activities
initiated subsequent to December 31, 2002.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes. Our exposure to
changes in interest rates is limited to borrowings under a line of credit
agreement which has variable interest rates tied to the LIBOR rate. There have
been no borrowings under this agreement in the 2002 first, second and third
quarters. The weighted average annual interest rates on borrowings under this
credit agreement were 6.3% in 2001. In addition, we have $150 million of
unsecured notes with an 8 1/2% fixed annual interest rate and $100 million of
unsecured notes with a 6 1/2% fixed annual interest rate at September 28, 2002.
We have no hedging instruments. From time to time, we invest excess cash in
overnight money market accounts. At September 28, 2002, we had invested
approximately $67 million in overnight money market accounts that yielded
approximately 1.8% per annum.
On October 24, 2002 we entered into a new three year $200 million credit
facility with a group of banks to replace our existing facility that was
scheduled to expire on November 23, 2002. Like our prior credit facility, this
new facility is for working capital, general corporate funding needs, and up to
$125 million for letters of credit we issue under our self-insurance program. As
of November 1, 2002 we had no borrowings drawn under the facility, but we had
approximately $67 million in issued letters of credit.
The facility bears interest at LIBOR plus a margin depending on our debt
rating. In addition, there are other fees associated with the facility and
certain financial covenants including minimum net worth and maximum funded debt
to adjusted cash flow.
Item 4. Controls and Procedures
In order to ensure information for disclosure in our filings of periodic
reports with the Securities and Exchange Commission is identified, recorded,
processed, summarized and reported on a timely basis, we have adopted disclosure
controls and procedures. Our Chief Executive Officer, Samuel K. Skinner, and our
Chief Financial Officer, Christopher L. Ellis, have reviewed and evaluated our
disclosure controls and procedures as of November 11, 2002 and have concluded
that our disclosure controls and procedures were adequate as of that date.
There have been no significant changes in our internal controls, which we
define to include our control environment, control procedures, and accounting
systems, or in other factors that could significantly affect our internal
controls, since November 11, 2002.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
We are a party to a number of proceedings brought under the Comprehensive
Environmental Response, Compensation and Liability Act, (CERCLA). We have been
made a party to these proceedings as an alleged generator of waste disposed of
at hazardous waste disposal sites. In each case, the Government alleges that the
parties are jointly and severally liable for the cleanup costs. Although joint
and several liability is alleged, these proceedings are frequently resolved on
the basis of the quantity of waste disposed of at the site by the generator. Our
potential liability varies greatly from site to site. For some sites, the
potential liability is de minimis and for others the costs of cleanup have not
yet been determined. While it is not feasible to predict or determine the
outcome of these proceedings or similar proceedings brought by state agencies or
private litigants, in the opinion of management, the ultimate recovery or
liability, if any, resulting from such litigation, individually or in the
aggregate,will not materially adversely affect our financial condition or
results of operations and, to our best knowledge, such liability, if any, will
represent less than 1% of its revenues.
Our USF Dugan subsidiary is currently the subject of a criminal
investigation by the City of Houston and an administrative investigation by the
Texas Commission on Environmental Quality arising from inadvertent diesel
releases from USF Dugan's Northfield facility located in Houston Texas. USF
Dugan has taken measures to respond to the environmental effects of these
releases and to curtail further releases. USF Dugan has also brought suit
against the environmental consultant who reviewed the Northfield facility prior
to USF Dugan's acquisition of the property in 1998.
Also, we are involved in other litigation arising in the ordinary course of
business, primarily involving claims for bodily injuries and property damage. In
the opinion of management, the ultimate recovery, or liability, if any,
resulting from such litigation, individually or in the aggregate, will not
materially adversely affect our financial condition or results of operations.
Item 2.Changes in Securities and Use of Proceeds.
N/A
Item 3.Defaults Upon Senior Securities.
N/A
Item 4.Submission of Matters to a Vote of Security Holders.
N/A
Item 5.Other Information.
N/A
Item 6.Exhibits and Reports on Form 8-K.
(a)Exhibits
(b)Current Reports on Form 8-K were filed:
1.A Current Report on Form 8-K was filed on August 12, 2002 announcing
that the Company had amended its Quarterly Report on Form 10-Q that
was filed on May 10, 2002.
2.A Current Report on Form 8-K was filed on August 13, 2002 providing
certain statements by the Company's Chief Executive Officer and Chief
Financial Officer as required by the Sarbanes-Oxley Act of 2002 and 18
U.S.C. Section 1350.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized. Dated the 12th day of November,
2002.
USFREIGHTWAYS CORPORATION
By: /s/ Christopher L. Ellis
________________________
Christopher L. Ellis
Senior Vice President, Finance and Chief Financial Officer
By: /s/ Robert S. Owen
_________________
Robert S. Owen
Controller and Principal
Accounting Officer
CERTIFICATIONS
I, Samuel K. Skinner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of USFreightways
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Samuel K. Skinner
_____________________
Samuel K. Skinner
President and Chief Executive
Officer
CERTIFICATIONS
I, Christopher L. Ellis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of USFreightways
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Christopher L. Ellis
________________________
Christopher L. Ellis
Senior Vice President, Finance, and
Chief Financial Officer